Biden to retain Jerome Powell as Fed chairman, appoints Lael Brainard as vice chairman – NBC10 Philadelphia

President Joe Biden announced Monday that he is appointing Jerome Powell to a second four-year term as Federal Reserve Chairman, endorsing Powell’s stewardship of the economy through a brutal pandemic recession in which ultra rate policies Fed downs have helped boost confidence and revitalize the job market.

Biden also said he would appoint Lael Brainard, the only Democrat on the Fed’s board of governors and the preferred alternative to Powell among many progressives, as vice president.

A separate post of vice president for supervision, a banking regulatory post, remains vacant, along with two other positions on the Fed’s board of directors. Those positions will be filled in early December, Biden said.

His decision strikes a note of continuity and bipartisanship at a time when soaring inflation is weighing on households and increasing the risks for the recovery of the economy. By supporting Powell, a Republican who was first elevated to his post by President Donald Trump, Biden dismissed progressives’ complaints that the Fed has weakened banking regulations and has been slow to take climate change into account. in its supervision of banks.

“If we are to continue building on this year’s economic success, we need stability and independence at the Federal Reserve – and I have full confidence, after their trial by fire over the past 20 months, that President Powell and Dr. Brainard will provide the strong leadership our country needs, ”Biden said in a statement.

In a second term, starting in February, Powell would face a difficult and high-risk balance: inflation has hit a three-decade high, causing hardship for millions of families, darkening the recovery and undermining the tenure of the Fed to keep prices stable. But with the economy still more than 4 million jobs below its pre-pandemic level, the Fed has yet to fulfill its other mandate of maximizing employment.

Next year, the Fed is expected to start raising its benchmark interest rate, with financial markets forecasting two hikes. If the Fed moves too slowly to raise rates, inflation can accelerate further and force the central bank to take more drastic action later to bring it under control, potentially causing a recession. Yet if the Fed raises rates too quickly, it could stifle hires and the recovery.

If confirmed, Powell would remain one of the most powerful economic leaders in the world. By raising or lowering its short-term interest rate, the Fed seeks to slow or stimulate growth and hiring, and keep prices stable. His efforts to lead the US economy, the world’s largest, usually have global consequences.

The Fed’s benchmark rate, which has been close to zero since the pandemic hit the economy in March 2020, influences a wide range of borrowing costs for consumers and businesses, including mortgages and cards credit. The Fed also oversees the country’s largest banks.

Powell’s re-appointment must be approved by the Senate Banking Committee and then confirmed by the entire Senate, which is widely expected.

He won the support of some liberal Democrats such as Sen. Sherrod Brown of Ohio, chairman of the banking committee, and moderate Democrats such as Jon Tester of Montana. It was also endorsed Monday by Sen. Pat Toomey, R-Pa., The leading Republican on the banking panel, and will likely receive broad support from Republicans.

“I look forward to working with Powell to stand up to Wall Street and stand up for working people, so they can share in the prosperity they are creating,” Brown said.

Three Democratic senators, including Senator Elizabeth Warren of Massachusetts, have said they will oppose Powell’s re-appointment. Warren called him a “dangerous man” because of his efforts to relax banking regulations while Senators Jeff Merkley of Oregon and Sheldon Whitehouse of Rhode Island said he was not sufficiently determined to use Fed monitoring of the financial system to fight climate change.

Biden and his team consulted with members of Congress on Powell’s appointment, a White House source said, insisting on anonymity to discuss private conversations within the administration. Biden recently met Warren at the White House for his contribution, the source said, and the president spoke with Brainard and Powell on Friday.

Wall Street applauded the renomination, with stock prices rising and fear measures easing in the market immediately after the announcement. The S&P 500 is about to close at another record.

Powell, a 68-year-old lawyer by training, was appointed to the Fed’s Board of Governors in 2011 by President Barack Obama after a lucrative career in private equity and after holding several positions in the federal government.

Unlike his three immediate predecessors, Powell does not have a doctorate. in economy. Yet he earned generally high marks for handling perhaps the world’s most important financial situation, especially in his response to the coronavirus-induced recession.

Yet this year’s spike in inflation forced the Powell Fed to slow down its economic stimulus sooner than it had anticipated. At its last meeting in early November, the central bank said it would start cutting its monthly bond purchases by $ 120 billion this month and likely end it by mid-2022. These purchases were aimed at keeping long-term borrowing costs low to stimulate borrowing and spending.

Powell has avoided much of the blame for inflation, at least on Capitol Hill, even though one of the Fed’s mandates is to keep prices stable through its interest rate controls. Instead, Republicans in Congress have singled out Biden’s economic policies as the main culprit. Most economists blame increased demand for goods like cars, furniture and appliances, as well as supply shortages, for driving up prices.

For months, Powell called inflation “transient,” but more recently the Fed chairman admitted that the higher prices had persisted longer than he expected. At a press conference this month, Powell acknowledged that high inflation could last until the end of summer 2022.

Brainard’s rise to the number 2 position of the Fed follows the key role it played in the Fed’s emergency response to the pandemic recession. She is part of a “troika” of key policy makers that includes Powell and Richard Clarida, whom she will replace as vice president in February.

Brainard was also the architect of the Fed’s new policy framework, adopted in August 2020, under which it said it would no longer hike rates simply because the unemployment rate had fallen to a low level that could stimulate inflation. Instead, the Fed said it would wait for real evidence of the price hike. This reflects the view of some Fed officials that low unemployment and even rising wages no longer necessarily accelerate inflation.

Yet this new policy approach, which was developed in an atmosphere of persistently low inflation, has come under great pressure.

Brainard also played a key role in the Fed redefining its maximum employment target as “broad and inclusive.” This means that he now takes measures such as the unemployment rate for African Americans, and not just Americans as a whole, into account in his policy decisions.

She has also carved out a distinct role as an opponent of the measures taken by the Fed over the past four years to ease banking regulations that had been tightened after the 2008 financial crisis. Since 2018, she has been the sole dissenter. out of 20 votes linked to financial rules.

In March 2020, for example, she opposed a regulatory change that she said would reduce the amount of reserves that big banks had to hold to hedge against losses.

Brainard also played a leading role in assessing how the Fed might take climate change into account more directly in its supervision of banks.

In a speech last month, Brainard said the Fed would likely provide advice to the banks it oversees on how to better assess the risks climate change poses to their lending portfolios, although it does not. did not provide a timetable. Many environmental groups say loans to oil and gas companies, as well as commercial real estate developers, could default and cause significant losses to banks if environmental damage worsens or renewables provide a larger share. of electricity production.

“Climate change,” she said, “is expected to have profound effects on the economy and the financial system, and it is already inflicting damage. “


Associated Press writer Josh Boak contributed.

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